Comments from George Kessler, the Manufacturing Institute, CBI and more...
The following comments from prominent members of the manufacturing community are in response to yesterday’s (Weds Jan 14) announcent that the government is to underwrite £20 billion of loans to small businesses.
Leave your own responses below.
Julian Wilson, director at Matt Black Systems:
“£10 billion in loans, a good plan that I applaud, make no mistake – this is no investment though.
“This money will provide a breathing space for industry to reduce capacity.
“There is now huge over capacity in many industries (manufacturing, gov and service), they cannot be allowed to all fail suddenly, we must enter into a period of dramatic contraction- but not too fast or supply chains and the economy will disintegrate. Slowing this process down will cost time and money. This makes the ultimate low lower, but it is a controlled decent- not disintegration.
“10 years of cheap, easy money and the misallocation of capital must be worked out of the system, we need the bad debt to be defaulted on, and business needs to re size to a sustainable level. This can’t happen overnight… but the market seems to be trying to do this though a vicious contraction.
“£10 billion buys you some good brakes, slowing down the process so hopefully we can adapt- don’t be fooled into thinking this is can provide any sort of a “rescue” though. Actually, thinking this is a rescue will prevent the adaptation that is necessary.
“£10 billion buys us some time, we all need to use this time wisely to consolidate and get sustainable (not in the eco sense, but in the survival sense).”
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George Kessler CBE, Group Deputy Chairman at Kesslers International:
“The first part of the plan to underwrite the loans will not help recession-hit firms who are in trouble as the banks will still not lend to these companies even if the government promise to cover 50 per cent. It still is too much of a risk. It will free up some lending but it will be of limited help.
“The second part is far more useful because it allows overdrafts to be turned into loans at a time when banks are beginning to call them in. so this is a scheme that could make a major difference. But it’s probably worth noting the Small Firms Loan Guarantees did not do a lot, so one must remain with a certain degree of scepticism.
“Finally, government investing in viable companies with high levels of debt, it really depends how that fund is used. Is it used as a bung, as because under state aid rules you can’t legally give companies money to write off debt, so if it is it will be an extremely helpful initiative which will see the UK catching up with our foreign counterparts. If on the other hand it is used as a venture capital fund whereby we only put the money in if we can get it out again and at a decent interest rate, it will make no difference. But, I reiterate, if it’s used as a way of getting around state-aid in the same way as the French do and the Germans do then it will be one of the first cases when the UK government has been imaginative.”
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CBI director-general Richard Lambert:
“The scale of the problem goes well beyond what the government has announced today.
“The impact of a damaged banking system on ordinary businesses has reached a critical stage and although today’s package will undoubtedly help many hard pressed firms it is silent when it comes to larger companies.
“Those businesses at the heart of so many vital supply chains face the daunting prospect of re-financing over £100 billion of credit facilities during 2009.
“The sense of living on borrowed time is palpable.”
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Adam Buckley, Head of Contracts and Programmes for The Manufacturing Institute:
“This is a significant move forward in restoring liquidity and addressing the immediate cash flow problems currently being experienced by manufacturers, but it doesn’t appear to address trading credit insurance cover which is a growing problem among many of the businesses we speak to.
“We are pleased to see that the government has widened the traditional definition of a SME to cover businesses with a turnover up to £500 million as the struggle for capital is affecting businesses of all sizes. What we also need to understand is what, if anything, will be put in place to support large business as the impact here will be felt across the supply chain and the loss of large manufacturers could potentially remove the objectives and benefits of the business loan guarantee. Whether this £20 billion fund is sufficient remains to be seen, but it is a positive step in the right direction.”
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Alan Tomlinson, partner, licensed insolvency practitioners Tomlinsons:
“More and more companies, many of them perfectly viable, are going to the wall because of cash-flow problems. Without credit, they are being crippled. Anything that can get money moving again has to be seen as a positive, although we shouldn’t get carried away. Firstly, how long will it take for this latest scheme to filter through – for many companies probably too long – and will it really get the banks lending again? There’s a big difference between theory and practice.”
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Manufacturing Advisory Service:
“MAS broadly welcomes the package of measures announced by the Government yesterday that will help address the cash flow, credit and investment needs of small and medium-sized companies, including manufacturers. The new “one stop shop” portal to help businesses identify their financial needs on the businesslink.gov website will provide the guidance that manufacturers need to help them ascertain their eligibility for a wide range of government support.”
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